CSDDD has been adopted in the European Parliament

The CSDDD requiring human rights and environmental due diligence has been adopted in the European Parliament.

CSDDD requires human rights and environmental due diligence.

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European Parliament passed the Corporate Sustainability Due Diligence Directive (CSDDD) in a vote on 24 April 2024. This means that the CSDDD has now passed all the EU legislative phases, and EU member states will have two years to transpose the directive into national legislation.

To comply with the rules, companies must exercise human rights and environmental due diligence in relation to their own operations, those of their subsidiaries, and their direct and indirect business partners throughout their chains of activities. This applies regardless of whether impacts occur within or outside the European Union. However, product disposal and indirect downstream business partners have been removed from the scope of application.

Alongside these due diligence requirements, the CSDDD requires companies to adopt and implement a climate transition plan that is in line with the Paris Agreement.

Scope

Companies in scope are large companies with over 1 000 employees and an annual turnover of over 450 MEUR. In Finland, the CSDDD will directly impact over 120 companies. However, the legislation is expected to have a ripple effect throughout the value chains of the companies in scope, thus affecting also smaller companies including through requirements of participation to the due diligence work of the in-scope companies.

Financial sector

The financial sector will only have to apply the CSDDD in relation to their own operations and upstream supply chains. Firms in the financial sector will also have to adopt a plan ensuring their business model complies with the Paris Agreement.

Adaptation scheme

The CSDDD includes an adaption scheme for in-scope companies (which applies from the moment the CSDDD entries into force), which is as follows:

Companies with more than 5000 employees and 1500 million turnover in the previous two consecutive financial years will have 3 years to comply with the CSDDD;
Companies with more than 3000 employees and 900 million turnover in the previous two consecutive financial years will have 4 years to comply with the CSDDD; and
Companies with more than 1000 employees and 450 million turnover in the previous two consecutive financial years will have 5 years to comply with the CSDDD.

Further, also falling under the Directive’s purview are

non-EU companies operating within the EU and meeting the turnover threshold of EUR 450 million (generated within the EU); and
companies that have a franchising or licensing agreement with a third-party company in the EU in return for royalties exceeding EUR 22,5 million, provided their worldwide net turnover also exceeds EUR 80 million.

Elements of mandatory human rights and environmental sustainability

The CSDDD offers comprehensive requirements for due diligence, with a risk-based approach, that are aligned with well-recognized international frameworks such as the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.

Companies will be required to:

embed responsible business conduct into policies and management systems;
identify, assess and prioritize actual or potential adverse impacts on human rights or the environment;
prevent, mitigate, or bring to an end adverse impacts and provide remediation where necessary;
engage meaningfully with stakeholders and implement robust complaint mechanisms; and
monitor the effectiveness of measures taken and communicate publicly on due diligence.

The CSDDD introduces rules on administrative sanctions, liability in court and civil liability. Furthermore, it will have an effect on government procurement.

Robust due diligence enables simultaneous compliance with multiple regulations

The CSDDD is part of a wider EU Green Deal, including other emerging ESG-related regulations, including the Corporate Sustainability Reporting Directive (CSRD), the EU Deforestation Regulation (EUDR), and the EU Taxonomy Regulation, aimed at promoting responsible business practices for companies operating in the EU.

How can we help:

KPMG has been preparing for the adoption of CSDDD in a Europe wide collaboration and has in place a holistic approach to CSDDD.

Maturity assessment of your due diligence system and climate transition plan
Conducting human rights and environmental risk mapping
Conducting human rights and environmental impact assessment
Support in creating preventive and mitigative actions
Support in development of grievance mechanisms
Support in remediation process
Support in stakeholder engagement & collaborative actions
Support in contract drafting and negotiation
Support in adopting and implementing the climate transition plan
Support in the interpretation and implementation of other CSDDD requirements
Drafting and commenting supplier code of conduct and other relevant company policies for compliance with CSDDD requirements
Support in training the management and other key stakeholders of CSDDD requirements